National and regional GDP - what do the latest data reveal?

Soaring coronavirus cases in the last three months of 2020 dampened GDP growth across the UK after a resurgent third quarter. Pre-existing disparities in GDP per capita between the four nations have also prevailed.

Gross domestic product (GDP) is the total value of all goods and services produced in the economy and is often used as a headline measure of a country’s economic activity. On 3 August 2021, the Office for National Statistics (ONS) released new data for GDP growth in each of the UK nations.

The data reveal that in the fourth quarter of 2020, GDP expanded in England, Northern Ireland, Scotland and Wales compared with the previous quarter (July to September 2020). This meant that overall UK GDP also rose by 1.3% during the last three months of the year.

Figure 1: UK regional quarter on quarter GDP growth, Q4 2018 – Q4 2020

Source: Office for National Statistics

In terms of the devolved nations, at 2.3% Scotland saw the largest relative GDP increase compared with the previous quarter, while Wales and Northern Ireland experienced growth of 0.9% and 0.7%, respectively. GDP in England grew by 1.2% (see Figure 1).

But what these figures reveal is that none of the UK nations were able to fully compensate for the record decline in quarterly GDP between April to June of 2020. During this period, which encompassed the majority of the first, almost uniformly implemented lockdown, all four nations experienced double-digit negative growth, ranging from a 19.4% contraction in Scotland to a 13.6% drop in Northern Ireland. Each nation’s output then bounced back strongly in the third quarter, with positive growth figures in the teens, as some restrictions were eased.

The comparative weakness of fourth quarter activity suggests that none of the UK regions enjoyed a so-called ‘V-shaped’ economic recovery, where production quickly returns to pre-crisis levels. The autumn resurgence of the virus hampered GDP growth in the UK and led to enhanced legal restraints including a fortnight-long Welsh ‘firebreak’ lockdown and the reimposition of more stringent national measures in England, when it became clear that the tiered system was insufficient to control the spread of the virus.

GDP figures for the final quarter of the year disguise major differences in the rules each nation implemented to limit Covid-19 cases, and the knock-on impact these had on economic activity. Looking more closely at the monthly data, GDP increased during October when shops and restaurants were open, despite the introduction of a new three-tiered system of localised restrictions in England. Output then fell in November as cases rose further and the second, broad national lockdown closed all but essential sectors in England, and Scotland moved the majority of local authorities into Level 3 and 4 restrictions.

It seems likely that the easing of restrictions – coinciding with the Christmas shopping period – helped boost GDP in December across the UK. Data from March 2021 show that, overall, UK GDP grew 1.3% in the fourth quarter of 2020, but this still left activity down 9.8% for 2020 overall.

Figure 2: UK nations’ reduction in GDP vs pre-pandemic, Q4 2019 baseline

Source: Office for National Statistics

Forthcoming national GDP data for January to March 2021 will help to illustrate the economic impact of efforts to ‘save Christmas’ across each of the four nations. But the subsequent surge of coronavirus cases, hospitalisations and deaths, and accompanying lockdown restrictions from Boxing Day onwards, will almost certainly have a large negative effect on national-level GDP.

Where can I find out more?

The latest ONS data release for national GDP is available here.
This report by the CBI from June 2021 gives GDP growth estimates for the end of the year and for 2022.
Quarterly GDP data from the ONS are available here.